Big Changes to Act 47

That’s true in the case of cities of the third class, a municipal classification that differentiates cities from those of the first class (Philly), second class (Pittsburgh), and second class a (Scranton) and allows legislation to appear as something other than tailored to a specific city.

Harrisburg-a third class city and the latest entrant into Act 47 distressed status-has yet to approve a recovery plan. Its council rejected to one written by the Act 47 coordinator, and then the revised plan written by the Mayor. As a result there is legislation pending that would make provisions for the state’s capital city by permitting the Governor to declare a fiscal emergency and eventually appoint a receiver for the city. What follows is a consent agreement between the city’s officials and the receiver which is supposed to outline the terms for a long-term stability plan. No "commuter tax" is permitted and there is a prohibition on filing for Chapter 9 bankruptcy. Failure to follow through leads to interactions with the courts and a follow up plan by the receiver and mandatory directions to the council and mayor.

Unless the history of Act 47 communities is significantly abridged on DCED’s website Harrisburg seems to be one of the few municipalities that has gone the route of rejecting the coordinator’s plan and having one written by a municipal official, only to see that one rejected as well (the City of Scranton had sanctions taken against it at one point). One has to suspect that the state is using the current legislation to nudge the City toward accepting a plan noting "…local officials are unwilling or unable to accept a solvency plan developed for the benefit of the community".

Whatever happens, the track record on Act 47 is clear: for every one municipality that has exited Act 47 there are three still in. And seven municipalities that are still in have had their original recovery plan amended some point after their initial one was written (Johnstown is on its 5th). So what does that say about the prospects for financial recovery in Harrisburg and other places?

Is the Capital City Headed for Bankruptcy?

Just last week, the state’s capital city, Harrisburg (population 47k), was declared financially distressed under Act 47.  Harrisburg becomes the 20th city since the statute became law in 1987 to be so designated, joining Pittsburgh, Reading, and Scranton among others.

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Money on Demand

History is repeating itself in the City of Harrisburg, and at an alarming rate: we wrote recently that the Commonwealth had agreed to expedite payments so that the capital city would not miss a bond payment. Just last week the City got additional help from the Harrisburg School District, the Harrisburg Authority, and the Parking Authority in order to meet payroll this week.

"It ameliorates the immediate crisis" was what the Mayor’s press secretary said. Note that he said immediate, which implies there are still long term problems. The City still is trying to secure a line of credit to pay its bills through the end of 2010. This follows on the heels of the Mayor’s official application to DCED to place the City in Act 47 distressed status. If approved Harrisburg will be the state’s 20th municipality in Act 47, and the first new entrant into distressed status in almost a year (Reading went into Act 47 status in November of 2009).

If placed in Act 47, Harrisburg would be given priority for aid and could even get emergency financial aid from the state, much like the quick cash that has been extended in the recent weeks.